Helping Employees Avoid Retirement Healthcare Sticker Shock

Housing? Check. Life insurance? Check. Dining out? Check. For most retirees, these types of line items are fairly predictable and factored into their monthly budget. But when it comes to healthcare, the situation can change dramatically. These expenses are often unpredictable and underestimated — and this wild card can disrupt an otherwise carefully planned retirement, leaving many seniors vulnerable.

A recent study reveals a troublesome disconnect between what retirees expect to spend on healthcare and the actual costs they will likely face. According to Fidelity’s 2024 Retiree Health Care Cost Estimate, a 65-year-old who retires this year can anticipate spending an average of $165,000 on healthcare throughout retirement. This estimate has risen nearly 5% from the previous year and has more than doubled since 2002.

Despite these escalating costs, the average American still expects to spend only around $75,000. However, there are strategies to help employees better predict — and plan for — medical costs in retirement

Fully leverage HSAs

Promote the use of Health Savings Accounts (HSAs) for tax-advantaged savings on eligible healthcare expenses. Consider auto-enrolling employees in HSAs where possible and offer matching contributions to further incentivize saving.

Demystify Medicare

Address concerns and complexities surrounding Medicare plans to simplify decision-making. Offer regular workshops and resources to help employees understand enrollment and coverage options. Online tools can also help guide employees through the process of selecting the best Medicare plan for their needs and budget.

Integrate Social Security planning

Clarify how healthcare expenses can impact the timing and value of Social Security benefits. Health problems can push retirees to claim benefits earlier, reducing their monthly check for life. Provide tools and resources to help them make informed decisions, aligning Social Security timing with individual healthcare needs.

Encourage participation in preventive health programs

Since early health challenges can lead to an early retirement, promote wellness program offerings such as smoking cessation, fitness programs, and regular health screenings to help reduce long-term healthcare costs.

Offer one-on-one financial advice

Healthcare planning can involve sensitive topics that employees may be hesitant to discuss in group settings. Offering personalized financial counseling allows employees to receive tailored advice in a more private and supportive environment.

Timing retirement

Employees who choose to work beyond the typical retirement age may face higher healthcare expenses if they delay enrolling in Medicare. While some may assume that staying on an employer-sponsored health plan will suffice, late enrollment penalties can apply if they don’t sign up for Medicare during their initial eligibility period. Additionally, working longer could mean higher income, which may increase Part B and Part D premiums.

Begin the Conversation Early

Using a multipronged approach and beginning the discussion about future healthcare costs early can help employees enjoy a more financially secure and predictable retirement.